-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bv05fsUdqy8eL5TSm07aN4zFaSwWZlf0Ti9elWNhl7h7lbjY+lROXuK8cZovSccU /Vtc3UnncmYujde2z/ZQiw== 0000908834-98-000126.txt : 19980513 0000908834-98-000126.hdr.sgml : 19980513 ACCESSION NUMBER: 0000908834-98-000126 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980512 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN GROUP INC CENTRAL INDEX KEY: 0000906609 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 222902315 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13586 FILM NUMBER: 98616346 BUSINESS ADDRESS: STREET 1: 2746 OLD U S 20 W STREET 2: PO BOX 1168 CITY: ELKHART STATE: IN ZIP: 46514 BUSINESS PHONE: 2192952200 10-Q 1 FORM 10-Q FOR THE MORGAN GROUP, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------------------- FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the period ended March 31, 1998 THE MORGAN GROUP, INC. 2746 Old U. S. 20 West Elkhart, Indiana 46515-1168 (219) 295-2200 Delaware 1-13586 22-2902315 (State of (Commission File Number) (I.R.S. Employer Incorporation) Identification Number) The Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports). and (2) has been subject to such filing requirements for the past 90 days. The number of shares outstanding of each of the Company's classes of common stock at April 30, 1998 was: Class A - 1,438,000 shares Class B - 1,200,000 shares The Morgan Group, Inc. INDEX PAGE NUMBER PART I FINANCIAL INFORMATION Item 1 Financial Statements Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997 3 Consolidated Statements of Operations for the Three Month Periods Ended March 31, 1998 and 1997 4 Consolidated Statements of Cash Flows for the Three Month Periods Ended March 31, 1998 and 1997 5 Notes to Consolidated Financial 6 - 7 Statements as of March 31, 1998 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 - 10 PART II OTHER INFORMATION 11 Item 6 Exhibits and Reports on Form 8-K 11 Signatures 12 PART I FINANCIAL INFORMATION The Morgan Group, Inc. and Subsidiaries Consolidated Balance Sheets (Dollars in thousands, except share amounts)
March 31, December 31, 1998 1997 ASSETS (unaudited) ----------- ------------ Current assets: Cash and cash equivalents $ 137 $ 380 Trade accounts receivable, less allowance for doubtful accounts of $202 in 1998 and $183 in 1997 14,864 13,362 Accounts receivable, other 245 126 Refundable taxes 537 263 Prepaid expenses and other current assets 2,566 2,523 Deferred income taxes 1,095 1,095 -------- -------- Total current assets 19,444 17,749 Property and equipment, net 4,417 4,315 Intangible assets, net 8,302 8,451 Deferred income taxes 767 767 Other assets 1,361 1,464 -------- -------- Total assets $ 34,291 $ 32,746 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Note payable to bank $ 3,515 $ 2,250 Trade accounts payable 4,403 3,410 Accrued liabilities 5,497 4,966 Accrued claims payable 2,125 2,175 Refundable deposits 1,375 1,666 Current portion of long-term debt 764 1,153 -------- -------- Total current liabilities 17,679 15,620 Long-term debt, less current portion 1,272 1,360 Long-term accrued claims payable 2,921 3,042 Commitments and contingencies - - - - - - - - Shareholders' equity: Common stock, $.015 par value Class A: Authorized shares - 7,500,000 Issued shares - 1,605,553 23 23 Class B: Authorized shares - 2,500,000 Issued and outstanding shares - 1,200,000 18 18 Additional paid-in capital 12,453 12,453 Retained earnings 1,887 2,160 -------- -------- Total capital and retained earnings 14,381 14,654 Less - treasury stock at cost 171,043 and 167,643 Class A shares (1,458) (1,426) - loan to officer for stock purchase (504) (504) -------- -------- Total shareholders' equity 12,419 12,724 -------- -------- Total liabilities and shareholders' equity $ 34,291 $ 32,746 ======== ========
The Morgan Group, Inc. and Subsidiaries Consolidated Statements of Operations (Dollars in thousands, except share amounts) (Unaudited) Three Months Ended March 31, 1998 1997 -------- -------- Operating revenues: Manufactured housing $ 21,224 $ 19,669 Driver outsourcing 5,367 4,889 Specialized transport 4,323 6,137 Other service revenue 3,057 2,938 -------- -------- Total operating revenues 33,971 33,633 Costs and expenses: Operating costs 31,655 30,675 Selling, general and administrative 2,368 2,233 Depreciation and amortization 295 294 -------- -------- 34,318 33,202 Operating (loss) income (347) 431 Interest expense, net 144 131 -------- -------- Income (loss) before income taxes (491) 300 Income tax expense (benefit) (260) 34 -------- -------- Net income (loss) $ (231) $ 266 ======== ======== Net income (loss) per common share: Basic and Diluted: Class A common stock $ (0.08) $ 0.10 ======== ======== Class B common stock $ (0.09) $ 0.09 ======== ======== The Morgan Group, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Dollars in thousands) (Unaudited)
Three Months Ended March 31, 1998 1997 ------- ------- Operating activities: Net income (loss) $ (231) $ 266 Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation and amortization 295 303 Gain on disposal of property and equipment (13) (21) Changes in operating assets and liabilities: Trade accounts receivable (1,502) (3,483) Other accounts receivable (119) (214) Refundable taxes (274) 21 Prepaid expenses and other current assets (43) 718 Other assets 103 (117) Trade accounts payable 993 988 Accrued liabilities 531 (437) Accrued claims payable (171) 442 Refundable deposits (291) (553) ------- ------- Net cash used in operating activities (722) (2,087) Investing activities: Purchases of property and equipment (255) (189) Proceeds from sale of property and equipment 20 48 Business acquisitions - - - (37) ------- ------- Net cash used in investing activities (235) (178) Financing activities: Net proceeds from notes payable to bank 1,265 3,100 Principle payments on long-term debt (477) (931) Purchase of treasury stock (32) (38) Common stock dividends paid (42) (42) ------- ------- Net cash provided by financing activities 714 2,089 ------- ------- Net decrease in cash and equivalents (243) (176) Cash and cash equivalents at beginning of period 380 1,308 ------- ------- Cash and cash equivalents at end of period $ 137 $ 1,132 ======= =======
The Morgan Group, Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) March 31, 1998 Note 1.Basis of Presentation The accompanying consolidated interim financial statements have been prepared by The Morgan Group, Inc. and Subsidiaries (the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulation. The consolidated interim financial statements should be read in conjunction with the financial statements, notes thereto and other information included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. The accompanying unaudited consolidated interim financial statements reflect, in the opinion of management, all adjustments (consisting of normal recurring items) necessary for a fair presentation, in all material respects, of the financial position and results of operations for the periods presented. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of operations for the interim periods are not necessarily indicative of the results for the entire year. The consolidated financial statements include the accounts of the Company and its subsidiaries, Morgan Drive Away, Inc., TDI, Inc., Interstate Indemnity Company, MDA Corporation, and Morgan Finance, Inc., all of which are wholly owned. Significant intercompany accounts and transactions have been eliminated in consolidation. Note 2. Recent Accounting Pronouncements Effective January 1, 1998 the Company adopted Statement of Financial Accounting Standard (SFAS) No. 130, "Reporting Comprehensive Income". SFAS No. 130 established standards for reporting and display for comprehensive income and its components in a full set of general purpose financial statements. There is no difference between comprehensive income and net income for the quarters ended March 31, 1998 and 1997. Note 3. Indebtedness The Company, on March 25, 1998, replaced the previous credit facility with a $15,000,000 revolving line of credit that matures on April 30, 2001. Additionally, the Company obtained from the same bank an $8,000,000 facility for letters of credit which expires on April 30, 1999. Revolving credit borrowings are limited to 80% of qualified trade accounts receivable. These facilities provide financing for working capital needs, letters of credit, and general corporate needs. Interest on the line of credit is determined at the Company's option at the time of the borrowing, based on the bank's prime rate or until December 31, 1998 at the London Interbank Offering Rate ("LIBOR"), plus 165 basis points. The LIBOR rate will be adjusted after December 31, 1998. The letter of credit rate is the applicable LIBOR margin rate. The agreement required payment of a closing fee of $25,000 and a facility fee of 25 basis points payable quarterly on the $15,000,000 revolving line of credit. The Company is to maintain certain minimum levels of net worth and a debt to net worth and interest coverage ratio. Borrowings are secured by trade accounts receivable, transportation equipment, office and service equipment, and general intangible assets. Note 4. Net Income (Loss) Per Common Share Net income (loss) available to each class of common stock is determined by adding together the amount of applicable dividends declared and the amount of undistributed earnings (loss) allocated. Undistributed earnings (loss) is allocated to each class of common stock equally per share. Net income (loss) applicable to common stocks is the same for the basic and diluted EPS computations for all periods presented. The following table reconciles basic and diluted earnings per share (dollars in thousands, except share amounts):
Three Months Ended March 31, (unaudited) 1998 1997 ----------- ----------- Allocation of net income (loss) to common stocks: Class A Stock: Dividends $ 30 $ 30 Allocation of undistributed earnings (loss) (149) 124 ----------- ----------- Net income (loss) applicable to Class A stock-basic and diluted $ (119) $ 154 ----------- ----------- Class B Stock: Dividends $ 12 $ 12 Allocation of undistributed earnings (loss) (124) 100 ----------- ----------- Net income (loss) applicable to Class B stock-basic and diluted $ (112) $ 112 ----------- ----------- Net income (loss) $ (231) $ 266 =========== =========== Weighted average shares outstanding: Class A stock: Basic 1,436,214 1,482,601 Dilutive effect of stock options 9,563 1,387 ----------- ----------- Diluted 1,445,777 1,483,988 =========== =========== Class B stock-basic and diluted 1,200,000 1,200,000 =========== =========== Class A basic and diluted EPS $ (0.08) $ 0.10 =========== =========== Class B basic and diluted EPS $ (0.09) $ 0.09 =========== ===========
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations The Morgan Group, Inc. is the nation's largest service company managing the delivery of manufactured homes, trucks, specialized vehicles, and trailers in the United States. Morgan provides outsourcing transportation services principally through a national network of independent owner operators. The Company dispatches its drivers from approximately 120 locations in 35 states. The Company's services also include providing certain insurance and financing services to its owner operators. The Manufactured housing group provides specialized transportation to companies which produce new manufactured homes, modular homes, and office trailers. In addition, the Manufactured housing group transports used manufactured homes and offices. The Driver outsourcing group provides drivers to customers to deliver commercial trucks and recreational vehicles. The Specialized transport group moves a variety of specialized vehicles, including semi-trailers, military vehicles, travel trailers and other commodities by utilizing specialized equipment. RESULTS OF OPERATIONS The following table sets forth the percentage relationships of operations data to revenue for the periods indicated. Three Months Ended March 31, (Unaudited) 1998 1997 ------ ------ Statement of Operations Data: Operating revenue 100.0% 100.0% Operating costs 93.1 91.2 Selling, general and administration 7.0 6.6 ------ ------ Depreciation and amortization .9 .9 Operating (loss) income (1.0) 1.3 Interest expense, net .4 .4 ------ ------ Income (loss) before income taxes (1.4) .9 Income tax expense (benefit) (.7) .1 ------ ------ Net income (loss) (.7)% .8% ====== ====== Operating revenues for the first quarter increased from $33.6 million in 1997, to $34.0 million in 1998. The first quarter of 1997 included $2.6 million of revenue from the discontinued truckaway operation which was part of Specialized transport. The increase was primarily in Manufactured housing operating revenues, which increased from $20.0 million in the first quarter of 1997 to $21.2 million for the same period in 1998. The Manufactured housing group principally experienced increased volume with the existing customer base in the first quarter of 1998. Driver outsourcing operating revenues also increased from $4.9 million in the first quarter of 1997 to $5.4 million for the same period in 1998. Operating costs as a percent of operating revenue increased from 91.2% in the first quarter of 1997 to 93.1% in the first quarter of 1998. The first quarter of 1998 was adversely affected by bodily injury and cargo claims, as well as expenditures for professional staff and other infrastructure, particularly to support the Specialized transport group. Conversely, the Company had an excellent claim experience in the first quarter of 1997. Selling, general and administration expenses increased from 6.6% of operating revenue in the first quarter of 1997 to 7.0% in the first quarter of 1998, primarily due to increased data processing costs and bad debts expense. The operating loss was 1.0% of operating revenues in the first quarter of 1998 compared to operating income of 1.3% in 1997. The income tax benefit was $260,000 in the first quarter of 1998 compared to the $34,000 income tax provision in the first quarter of 1997. The net loss in the first quarter of 1998 was $231,000 (Class A $0.08 and Class B $0.09 per basic and diluted share). The net income in the first quarter of 1997 was $266,000 (Class A $0.10 and Class B $0.09 per basic and diluted share). Shipments of manufactured homes tend to decline in the winter months in areas where poor weather conditions inhibit transport. This usually reduces operating revenues in the first and fourth quarters of the year. Recreational vehicles and travel trailer movements are generally stronger in the spring, when dealers build stock in anticipation of the summer vacation season, and late summer and early fall when new vehicle models are introduced. The Company's operating revenues, therefore, tend to be stronger in the second and third quarters. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents decreased from $380,000 as of December 31, 1997 to $137,000 as of March 31, 1998, while debt levels increased $788,000. Cash was used during the first quarter of 1998 to finance trade accounts receivable growth of $1.5 million associated with strong March operating revenues. While the Company has historically used cash in operations in the first quarter of each year, this use in 1998 was $1.3 million less than in the prior year period. This improvement in cash management was due to accelerated trade accounts receivable collections and more stringent treasury management. The increase in trade accounts receivable was partially offset by increases in trade accounts payable and accrued liabilities. Trade accounts receivable days sales outstanding (DSO) decreased from 37 days at December 31, 1997 to 31 days at March 31, 1998. The Company, on March 25, 1998, entered into a $15.0 million revolving line of credit which matures on April 30, 2001. Additionally, the Company has obtained from the same bank an $8.0 million facility for letters of credit which expire on April 30, 1999. Revolving credit borrowings are limited to 80% of qualified trade accounts receivable. These facilities provide financing for working capital needs, letters of credit, and general corporate needs. The Company at March 31, 1998 had $7.3 million of unused credit under the revolving credit agreement. The Company is focused on reducing overhead, including selling, general and administration expense, and redundant operating costs. Management has also initiated processes to expedite customer billings and collections to improve cash flow. It is management's opinion that the Company's foreseeable cash requirement will be met through a combination of improved internally generated funds and the credit available from the new facility. FORWARD LOOKING DISCUSSION This report contains a number of forward-looking statements. From time to time, the Company may make other oral or written forward-looking statements regarding its anticipated operating revenues, costs and expenses, earnings and other matters affecting its operations and condition. Such forward-looking statements are subject to a number of material factors which could cause the statements or projections contained therein to be materially inaccurate. Such factors include, without limitation, the risk of declining production in the manufactured housing industry; the risk of losses or insurance premium increases from traffic accidents; the risk of loss of major customers; risks of competition in the recruitment and retention of qualified drivers in the transportation industry generally; risks of acquisitions or expansion into new business lines that may not be profitable; risks of changes in regulation and seasonality of the Company's business. Such factors are discussed in greater detail in the Company's Annual Report on Form 10-K for 1997 under Part I, Item 1, Business 7. PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K (a) The following exhibis are included herein: Exhibit 27.1 - Financial Data Schedule for the Quarter Ended March 31, 1998 Exhibit 27.2 - Restated Financial Data Schedule for the Quarter Ended March 31, 1997 (b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter for which this report is filed. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE MORGAN GROUP, INC. BY: /s/ Dennis R. Duerksen ------------------------------ Dennis R. Duerksen Chief Financial Officer Date: May 11, 1998 EX-27.1 2 FDS FOR THE QUARTER ENDED MARCH 31, 1998
5 (Replace this text with the legend) 0000906609 The Morgan Group, Inc. 1,000 U.S. Dollars 3-MOS DEC-31-1998 JAN-1-1998 MAR-31-1998 1.000 137 0 14,864 202 0 19,444 6,818 2,401 34,291 17,679 0 41 0 0 12,378 34,291 33,971 33,971 0 34,318 0 69 144 (491) (260) (231) 0 0 0 (231) (0.08) (0.08)
EX-27.2 3 FINANCIAL DATA SCHEDULE FOR THE MORGAN GROUP, INC.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. The Morgan Group, Inc. 0000906609 1,000 U.S. Dollars 3-MOS Dec-31-1997 Jan-1-1997 Mar-31-1997 1.000 166 966 14,795 48 0 19,696 5,778 3,003 35,861 17,382 0 41 0 0 13,290 35,861 33,633 33,633 30,675 33,202 0 0 131 306 34 266 0 0 0 266 .10 .10
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